What’s driving current mortgage rates?
Average mortgage rates today are just slightly lower than they were yesterday, something we predicted here. As Mortgage Rates Daily notes, that brings them yet closer to their lowest point in the last 12 months. But it also means that the markets that affect mortgage rates are still becalmed and showing directionless drift each day.
When will we get some stronger winds that send them off in a definite direction? It might be today, which earlier saw markets more skittish than they have been recently. But it’s equally possible that could turn out to be a storm in a teacup.
The data below the rate table are mostly indicative of somewhat higher rates in the short-term.
|Conventional 30 yr Fixed||4.538||4.549||Unchanged|
|Conventional 15 yr Fixed||4.083||4.102||+0.04%|
|Conventional 5 yr ARM||4.25||4.811||-0.01%|
|30 year fixed FHA||3.875||4.864||Unchanged|
|15 year fixed FHA||3.688||4.638||Unchanged|
|5 year ARM FHA||3.938||5.293||-0.01%|
|30 year fixed VA||4.413||4.606||Unchanged|
|15 year fixed VA||3.813||4.126||+0.06%|
|5 year ARM VA||4.063||4.546||-0.01%|
|Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.|
Financial data affecting today’s mortgage rates
Earlier, today’s market data were mostly negative for mortgage rates, suggesting those rates might climb moderately higher over the next 24 hours. By approaching 10:00 a.m. (ET), the data, compared with this time yesterday, were:
- Major stock indexes were lower (bad for mortgage rates)
- Gold prices fell, standing at $1,336 an ounce compared to yesterday’s $1,347. (This is bad for mortgage rates. In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower)
- Oil prices were higher at $57 a barrel compared with yesterday’s $56 (bad for mortgage rates because energy prices play a large role in creating inflation)
- The yield on ten-year Treasuries rose to 2.69 percent. up from yesterday’s 2.65 percent. That’s bad for borrowers because mortgage rates tend to follow Treasuries
- CNNMoney’s Fear & Greed Index added a couple of points, bouncing back to 70 after yesterday’s fall to 68 (out of a possible 100). It remains solidly in “greed” territory. That is better for borrowers, but only very slightly. “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are better than higher ones.
Rate lock recommendation
The problem with long periods of barely shifting mortgage rates is that it’s easy to assume we’re experiencing the new normal. We aren’t. True, nobody knows precisely when those rates will break out, nor how sharply they’ll move, nor the direction they’ll take. But it’s certain they will move, probably quite soon.
And, just possibly, today. First thing this morning, markets were moving more sharply than they’ve been doing recently. And, if momentum builds during the day, we might see a higher upward movement than we’ve grown used to.
So remain vigilant right up until you lock in your rate. You can keep up with the market sentiment here. And you can track markets in real time yourself. But nobody can predict the unpredictable. So watch the headlines for big events (foreign and domestic) that might affect the U.S. economy. For example, yesterday saw a little movement on the back of reports of “hope” for a successful conclusion to the U.S.-China trade talks. If such an outcome were to be officially announced, that would likely change markets more significantly. As a very general rule, to which there are exceptions, float on bad news and lock on good.
When to lock anyway
You may wish to lock your loan anyway if you are buying a home and have a higher debt-to-income ratio than most. Indeed, you should be more inclined to lock because any rises in rates could kill your mortgage approval. If you’re refinancing, that’s less critical and you may be able to gamble and float.
If your closing is weeks or months away, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer your lock, the higher your upfront costs. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.
If you’re still floating, stay in close contact with your lender, and keep an eye on markets. I recommend:
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- FLOAT if closing in 30 days
- FLOAT if closing in 45 days
- FLOAT if closing in 60 days
A couple of reports this week are marked “DELAYED” in MarketWatch’s economic calendar. This has become routine in the wake of the recent government shutdown.
Yesterday’s publication of the Federal Open Market Committee’s (FOMC — the Fed body that determines many interest rates) minutes of its last meeting hardly moved markets. And today’s economic data look unlikely to cause much of a splash. So, with tomorrow’s economic calendar essentially blank, we may have to wait until next week — or longer — for any really significant movement in mortgage rates. Unless, of course, momentum builds in this morning’s skittish markets or some big, important news story breaks before then.
- Monday: Nothing
- Tuesday: Nothing
- Wednesday: Publication of the minutes of the last meeting of the FOMC
- Thursday: Weekly Jobless Claims (216,000 actual compared with the predicted 229,000), Durable Goods Orders for December (up a disappointing 1.2 percent, against a forecast of 1.4 percent), January Existing Home Sales (4.94 million actual (a three-year low) against an expected 4.98 million), Leading Economic Indicators for January: declined 0.1 percent.
- Friday: Nothing
What causes rates to rise and fall?
Mortgage interest rates depend a great deal on the expectations of investors. Good economic news tends to be bad for interest rates because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.
For example, suppose that two years ago, you bought a $1,000 bond paying 5 percent interest ($50) each year. (This is called its “coupon rate” or “par rate” because you paid $1,000 for a $1,000 bond, and because its interest rate equals the rate stated on the bond — in this case, 5 percent).
- Your interest rate: $50 annual interest / $1,000 = 5.0%
When rates fall
That’s a pretty good rate today, so lots of investors want to buy it from you. You can sell your $1,000 bond for $1,200. The buyer gets the same $50 a year in interest that you were getting. It’s still 5 percent of the $1,000 coupon. However, because he paid more for the bond, his return is lower.
- Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%
The buyer gets an interest rate, or yield, of only 4.2 percent. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.
When rates rise
However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.
Imagine that you have your $1,000 bond, but you can’t sell it for $1,000 because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:
- $50 annual interest / $700 = 7.1%
The buyer’s interest rate is now slightly more than seven percent. Interest rates and yields are not mysterious. You calculate them with simple math.
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.